With home values on the rise, HELOCs have become a popular way for homeowners to tap into their growing equity.
A report from CoreLogic shows that U.S. homeowners with mortgages—about 62% of all homes—have gained a total of $1.3 trillion in home equity since mid-2023. That’s an 8% increase in one year, bringing total homeowner equity to more than $17.6 trillion.
These flexible credit lines, which come with lower interest rates than most loans, are seeing a surge in demand; HELOC borrowing limits have increased for 10 consecutive quarters, adding $9 billion in the latest round. Keep in mind, the most common type of HELOC has a variable or adjustable interest rate, which means the interest rate will go up or down depending on the market.
Dottie Herman, vice chair and former CEO of Douglas Elliman, a real estate brokerage firm, underscores the key benefit of a HELOC: Borrowers with low mortgage rates don’t have to refinance to access equity.
“A major advantage is that it doesn’t affect your primary mortgage rate. If you’re locked into a low rate—like 3-4%—that stays untouched,” Herman says. “Plus, HELOCs come with much lower closing costs than refinancing, and you only repay what you actually borrow, making it a flexible and cost-effective option.”
But a HELOC is only as good as your strategy—used wisely, it can help you save money or navigate tight financial spots.
Here are three ways to maximize your home’s equity while staying financially secure.
1. Investing in the Roof Over Your Head
A HELOC can be a practical option for funding home improvements, particularly for value-boosting projects like kitchen remodels, bathroom upgrades, or replacing a roof. These projects not only enhance your living space but can also increase your property’s resale value.
Using a HELOC for home improvements can also come with a tax bonus: the IRS allows you to deduct the interest if the funds are used to “buy, build, or substantially improve” the home securing the loan.
This means projects like remodeling your kitchen, adding a new bathroom, or repairing a roof could qualify for the deduction, helping to offset the cost.
However, this tax break only applies through 2025 and doesn’t extend to funds used for other purposes, like paying off personal debts or covering living expenses. Sticking to home upgrades ensures you get the most out of your HELOC.
This type of credit is especially useful for projects with unexpected costs, such as hidden structural issues or outdated electrical systems, as it allows you to access funds as needed rather than all at once. For major repairs, like installing a new roof, a HELOC can bridge the gap when maintenance budgets fall short.
For homeowners planning to sell, a HELOC can also cover the cost of pre-sale updates like landscaping or system upgrades, which might help attract buyers or increase the sale price.
However, avoid over-improving beyond your neighborhood’s value range. Spending on upgrades like a luxury kitchen or a high-end pool in a modestly priced area might not add as much value as you’d expect, and your investment may miss the mark.
If you’re unsure whether your investment will yield worthy returns, talk to a local real estate agent. With their insight into the area’s housing market, they can guide you on what upgrades make sense and which may be overreaching for your community. A strategic approach can help you maximize your investment while keeping your property competitive.
2. Your Safety Net in Times of Need
As savings dwindle—just 54% of adults had three months’ emergency savings in 2023, down from 59% in 2021—a HELOC can be a financial backup for unexpected expenses, like medical bills or major car repairs.
Its appeal lies in flexibility: you only pay interest on what you borrow, so it’s there when you need it with lower closing costs than refinancing.
On average, HELOC closing costs are about 2% to 5% of the total line of credit. So, if you open a $100,000 line of credit, expect to pay $2,000 to $5,000 in closing costs. You can roll the closing costs into the loan. Apples to apples, refinancing a mortgage is slightly higher at 3% to 6% of the principal—so if you owe $100,000, refinancing costs can range from $3,000 to $6,000.
But tread carefully—a HELOC is secured by your home, meaning missed payments could jeopardize your most valuable asset. While it can bridge financial gaps, using it for emergencies requires discipline. Repay promptly to avoid turning a temporary fix into a long-term risk.
3. Cutting the Cost of Your Credit Card Debt
Using a HELOC to consolidate debt can offer relief from high interest rates, particularly on credit cards, where rates often climb into the double digits.
With Americans shouldering $1.17 trillion in credit card debt alongside increasing mortgage, student loan, and auto loan balances, according to the New York Fed, financial strain is evident as delinquency rates continue to rise.
Transferring debt to a HELOC may lower your interest costs and improve cash flow, but it comes with significant risks.
Unlike unsecured credit card debt, a HELOC is secured by your home—meaning missed payments could jeopardize your most valuable asset. While this strategy can provide breathing room, it requires financial discipline.
Without curbing overspending, you could find yourself in deeper debt, with your home on the line. A HELOC can be a helpful tool, but it’s no substitute for addressing the root causes of financial stress. You may want to consider an unsecured loan, such as a balance transfer credit card.
Bottom Line
A HELOC can be a solid financial tool, giving you flexibility and lower costs than many other borrowing options. But remember, your home is on the line—it’s the collateral backing the loan. That makes it crucial to think hard about how you use it. Borrow wisely, or you could risk turning your biggest asset into your biggest regret.
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